Current Affairs for Civil Services

1. Revenue Sharing v/s Production
Sharing Contract
Harveer Singh
1Harveer Singh

2. Revenue Sharing v/s Production
Sharing Contract
• India has inked 310 PSCs so far, and the government is
fighting 22 arbitration cases.
• India adopted a more transparent and market-oriented
regime for hydrocarbon exploration and production-
Revenue Sharing (Cost Recovery Model).
• It would address the Goldplating Cost and Transfer
Pricing.
• The current production sharing contract (PSC)
framework allows for cost recovery by exploration and
production (E&P) companies before they pay the
government its share of revenue.
2Harveer Singh

3. • The move is consistent with the observation of
the CAG that the PSC “does not provide adequate
incentives to private contractors to reduce capital
expenditure”.
• The earlier contracts were based on the concept
of profit sharing.
• Under the profit sharing methodology, it became
necessary for the Government to scrutinize cost
details of private participants and this led to
many delays and disputes.
3Harveer Singh

4. • India approved Nelp in 1997— it took effect in
January 1999—to boost hydrocarbon
exploration.
• Under Nelp, the government allocates rights
to explore hydrocarbon blocks through a
bidding process
• It has done this in nine phases so far for 360
blocks, with an investment of around $21.3
billion.
4Harveer Singh

5. • “Some of the major issues/constraints in the
existing PSC model are
– i. Inadequate incentives for the operator to keep the
cost low.
– ii. Require constant and micro monitoring by the
government... leading to procedural delays and
arbitrations.
– iii. Assessment of recoverable costs leads to dispute
between the government and contractor.
– iv. Provide opportunity to operator to leverage/
manipulate Investment Multiple in their favor based
on which profit sharing is determined.”
5Harveer Singh

6. Thank You.
• For any
feedback/query/word of
thanks, the Tutor can be
contacted at
harveersinh@gmail.com
6Harveer Singh